>> Starbucks misses by $0.12, misses on revs; US comps -3%; global comps -4%; wi

Starbucks misses by $0.12, misses on revs; US comps -3%; global comps -4%; will guide on conference call at 17:00 ET (88.49 +0.16)
  • Reports Q2 (Mar) earnings of $0.68 per share, excluding non-recurring items, $0.12 worse than the FactSet Consensus of $0.80; revenues fell 1.8% year/year to $8.56 bln vs the $9.12 bln FactSet Consensus.
  • Global comparable store sales declined 4%, driven by a 6% decline in comparable transactions, partially offset by a 2% increase in average ticket. North America and U.S. comparable store sales declined 3%, driven by a 7% decline in comparable transactions, partially offset by a 4% increase in average ticket. International comparable store sales declined 6%, driven by a 3% decline in both comparable transactions and average ticket; China comparable store sales declined 11%, driven by an 8% decline in average ticket and a 4% decline in comparable transactions. The company opened 364 net new stores in Q2, ending the period with 38,951 stores: 52% company-operated and 48% licensed. At the end of Q2, stores in the U.S. and China comprised 61% of the company's global portfolio, with 16,600 and 7,093 stores in the U.S. and China, respectively.
  • GAAP operating margin contracted 240 basis points year-over-year to 12.8%, primarily driven by deleverage, incremental investments in store partner wages and benefits, increased promotional activities, lapping the gain on the sale of Seattle's Best Coffee brand, as well as higher general and administrative costs primarily in support of Reinvention. This decline was partially offset by pricing and in-store operational efficiencies.
  • "While it was a difficult quarter, we learned from our own underperformance and sharpened our focus with a comprehensive roadmap of well thought out actions making the path forward clear," commented Rachel Ruggeri, chief financial officer. "On this path, we remain committed to our disciplined approach to capital allocation as we navigate this complex and dynamic environment," Ruggeri added.
  • Company typically guides on conference call at 17:00 ET.

WWD : Hermès AGM Mingles Shadow Puppets and Luxury Wisdom

Hermès AGM Mingles Shadow Puppets and Luxury Wisdom
"We live in an unstable world, and therefore it is important to be a resilient company," CEO Axel Dumas told the gathering.

A hand-painted Hermès Kelly handbag.
COURTESY OF HERMÈS
PARIS — An Hermès shareholders’ meeting hits different.
Held at Art Deco concert hall Salle Pleyel in Paris on Tuesday, it opened with a display by Philippe Beau, a French master of shadow puppets. Backed by a live pianist, drummer and bass player, he twisted his supple fingers into flying birds, hopping rabbits, and — of course — galloping horses.

The meeting had some of the usual — colorful pie charts, a snoozy auditor presentation and long-winded questions from cranky shareholders, including one from PETA — but more of the less expected, and the artistic. The latter included stirring films showing Kelly bags painstakingly hand-painted; wicker being harvested, sorted and ultimately woven into handbag frames; bricks being baked to build its new leather goods workshop in Louviers, France, and bespoke stained-glass windows being installed in the new Vienna store, creating a heavenly atmosphere.
A leather and wicker Hermès vessel.
COURTESY OF HERMÈS

Hermès chief executive officer Axel Dumas was also more expansive than usual, reflecting on profound changes in the luxury sector since he arrived at the management helm a decade ago.

“We live in an unstable world, and therefore it is important to be a resilient company that makes progress when it is possible, and sits tight when things are difficult,” he told the capacity crowd.

He went on to describe those changes, the first being that “people no longer buy luxury goods based on their income, but based on their wealth,” he said, stressing that a “crisis in real estate” will have a bigger impact on spending than slower economic growth, for example.

The executive also described a polarizing competitive landscape. Whereas at the beginning of his tenure, only a few percentage points separated the strongest and weakest players in luxury, today the best-in-class might be logging 20 percent annual gains and the worst-in-class slipping by 20 percent.

Bucking a global slowdown in luxury spending, Hermès reported sales gained 17 percent at constant exchange in the first quarter of 2024, whereas organic revenues at Gucci, which is undergoing a revamp, were down 18 percent in the same period.
Axel Dumas
COURTESY OF HERMÈS

“This is a testament to the loyalty of our clients and the strength of our business model,” he said, referring to the strong first-quarter results. “We are looking ahead this year with a lot of confidence and a unique, robust model.”

Finally, Dumas trumpeted the advantages of “being a certain size,” explaining that brands with scale can invest heavily in production, distribution and communications, and thereby win greater mind and wallet share. In 2023, revenues reached 13.43 billion euros.

It was trumpeted several times during the meeting that revenues at Hermès have roughly tripled in size over the past decade, with the share price increasing tenfold — going from the price of a silk square to a leather and canvas handbag, said Dumas, employing Hermès products as economic shorthand.

Regarding the outlook, the executive cited some moderating in its growth, which at constant exchange rates stood at 20.6 percent in 2023, 23.4 percent in 2022, and 41.8 percent in 2021. He attributed this to post-pandemic euphoria “petering out.”


Still, “I believe there’s a very strong dynamic in Asia with a middle class that is growing. I’m quite optimistic when it comes to the future growth of our industry,” he said.

Hermès International set its ordinary dividend for 2023 at 15 euros, with an exceptional dividend of 10 euros being distributed, thanks to the company’s banner performance and its strong cash position.

Also at the meeting, executive chairman Henri-Louis Bauer paid tribute to Bertrand Puech, who died Jan. 31 year at age 87.

A fifth-generation member of the founding family, Puech started his career in 1964 as a manager at the Hermès flagship on the Rue du Faubourg Saint-Honoré in Paris, rose through the ranks to become deputy director of human resources in 1990, and eventually president of the management board in 2007.

Bauer said Puech staunchly defended the independence of the group in the face of a creeping takeover attempt by rival LVMH Moët Hennessy Louis Vuitton, and paved the way for the nonlisted holding company, dubbed H51, which groups 50.15 percent of its share capital.

FT : BBVA/Sabadell offers a test case for more European bank consolidation

BBVA/Sabadell offers a test case for more European bank consolidation
Nearly three-quarters of the larger lender’s revenues come from outside Spain

Higher interest rates have boosted Spanish retail banks’ profits, attracting buyers to their shares in the past year. But investors aren’t the only ones who have taken a shine to these lenders; so have other bank executives.

On Tuesday afternoon, BBVA confirmed reports that it was preparing an offer for local rival Banco Sabadell. While the industrial logic makes sense for BBVA, for the deal to add to the pro forma group’s earnings per share will require significant cost cutting.

BBVA can add scale to its Spanish business, especially in lending to smaller corporates. Nearly three-quarters of the larger lender’s revenues come from outside Spain, mostly Mexico and Turkey, according to Visible Alpha estimates.

A previous effort to put the two together fell apart in 2020. Today a combination would create the country’s second-largest bank, worth almost €70bn. BBVA may have been spurred to act by rumours that Sabadell might itself move on smaller peer Unicaja. 


Southern European banks have been big winners in the sector this year. Slower than expected European Central Bank interest rate cuts combined with subdued deposit account outflows improve the outlook for net interest income. Sabadell shares are up by more than two-thirds year to date, including a 5 per cent bump on Tuesday.

But the rise in Sabadell’s valuation makes this combination harder for BBVA to justify. Assuming BBVA pursues an all-share deal, to avoid reducing its capital buffers, any obvious valuation arbitrage between the two has dissipated. Both banks now command the same valuation at just over seven times forward earnings, according to Bloomberg data. 

Cost cutting is thus critical to any deal. BBVA’s expected return on tangible equity is 15.5 per cent this year or 4 points higher than Sabadell’s. The latter has a cost-to-income ratio of some 51 per cent, well above BBVA’s 42 per cent.

Regulators are likely to be supportive. In-country consolidation should improve scale leading to better profitability. This is predicated on the large overlap between the two’s domestic branch networks, estimated at about 1,200 by Barclays at the time of the last merger attempt. BBVA will need to extract cost savings equal to 15 per cent of Sabadell’s operating overheads, after tax, about €312mn this year.

Should BBVA pay much more than Sabadell’s closing price Tuesday, the deal could be dilutive to earnings. That explains why shareholders sold BBVA shares down 6 per cent. Regardless of logic, BBVA should carefully scrutinise any proposed price for Sabadell.

FT : Deliveroo, Just Eat and Uber Eats to make direct checks on UK riders’ immig

Deliveroo, Just Eat and Uber Eats to make direct checks on UK riders’ immigration status
Move by food delivery companies comes after pressure from ministers over illegal working

Deliveroo, Just Eat Takeaway and Uber Eats have agreed to conduct direct checks on all UK riders’ immigration status after coming under pressure from ministers to tackle illegal working and exploitation in the sector.

The Home Office said on Tuesday that the three food delivery companies had committed to changing their processes to confirm substitute riders, who share accounts with people engaged directly by the groups, also had the right to work legally in the UK. 

Ministers singled out the food delivery sector last year as part of a broader drive to cut net immigration, which hit a record 745,000 in 2022.

Home secretary James Cleverly on Tuesday said new figures for visa applications justified the policy changes he had made, with tighter rules for students leading to a “drastic” fall in the number bringing dependants. 

The data also showed a sharp fall in visa applications for care workers. Since March they have been unable to bring family members with them, but many already working in the UK appear to have rushed to apply for dependent visas in the few months before the ban took effect. 

Alongside tighter visa rules, the Home Office has stepped up enforcement action in sectors where it believes visa rules are being abused. 

Robert Jenrick, then immigration minister, wrote to the three food delivery companies in November saying enforcement activity had exposed high levels of illegal working in the sector. 

He blamed this on “business models which rely on individuals themselves to confirm a person’s eligibility to work, enable unchecked account sharing to take place and are completely unacceptable”. 

Deliveroo and its competitors allow self-employed riders to appoint other people to complete work for them, saying riders are responsible for making sure their substitutes are over 18, have the right to work in the UK and can do so safely. 

This right to appoint a substitute has been viewed by UK courts as a key feature of self-employment, helping Deliveroo fight off a legal case brought by the Independent Workers’ Union of Great Britain. 

The UK Supreme Court in November ruled that Deliveroo riders cannot be recognised as workers in an employment relationship or represented by trade unions for collective bargaining.

But the practice of substitution has become increasingly controversial as online marketplaces have developed, where riders rent out accounts.

The practice came under the spotlight last year following a report of the death of a 17-year-old who was working on a rented Deliveroo account, despite being below the minimum age.

Michael Tomlinson, illegal migration minister, said “illegal working puts their customers at risk, drives down wages and defrauds the taxpayer”.

Deliveroo said on Tuesday that it was “committed to strengthening our controls to prevent misuse of our platform”, after earlier this month rolling out a new tool to register substitutes, including checks on their right to work.  

Uber Eats also said it planned to roll out identity checks, and Just Eat said it was working with industry and policymakers “to develop a solution which will ensure couriers substituting their work do so in accordance with the law”. 

The IWGB union accused the government of scapegoating migrants with “bogus claims” that they were undercutting wages and risking public safety. It said it was already seeing “numerous dismissals of couriers with the right to work as a result of these checks malfunctioning”.

WWD : While Secondhand Watch Market Sees Downturns, Christie’s Finds Opportuniti

While Secondhand Watch Market Sees Downturns, Christie’s Finds Opportunities Among Younger Clients
As the overall secondhand watch market sees challenges, Christie’s is finding success by targeting a younger demographic with unique auctions.

F.P. Journe Tourbillon Souverai Souscription Model No. 2/20, circa 1999, which sold for 2.7 million Swiss francs in 2023.

Despite the slowdown in the secondhand watch market, Christie’s remains optimistic on the opportunities to continue its success in the category.

According to Christie’s head of sales for the watch department, Rebecca Ross, and watch specialist, Mathieu Ruffat, the auction house has been able to successfully navigate the challenges facing the secondhand watch market thanks to its auctions of unique timepieces, as well as a growing younger clientele.

In 2023, Christie’s came out as the global market leader by generating $234 million through 12 live sales and eight online sales, according to the auction house.

“Right after COVID-19, the prices were crazy,” Ruffat explained. “The demand was huge, especially for modern watches, and for the last few months, we can feel that there’s a downturn. We don’t really see it at Christie’s because the watches that we offer at our auctions, they are mostly vintage watches. And today, what our collectors are looking for are extremely rare, vintage watches or independent watchmakers.”


Ross echoed Ruffat’s statement, saying: “The phenomenal collections that we’ve been able to offer our clients in our auctions, we’re able to sort of sidestep the declining market a little bit in that way by offering items that are highly covetable and fresh to the market to our customers.”
Mathieu Ruffat
COURTESY OF CHRISTIE’S

In addition to the unique auctions, Ross and Ruffat explained that a burgeoning younger clientele has also posed as an area of opportunity to continue Christie’s success in the secondhand watch market.

“It’s very interesting to see the changing profile for the modern watch collector,” Ross continued. “For the longest time, the watch collector was the same kind of collector with similar interests in brands and similar sort of tastes, but now you have more of the exchange of information on the internet being so obvious and so easy to access. You have all sorts of micro-communities that have the knowledge and the intelligence, but are not the typical collector and consumer that you would have seen a decade or two ago.”

Along with this rise of the younger watch client also comes an increase in female watch collectors, Ross explained. Ruffat noted that Christie’s watch clientele is still predominantly male, however, the auction house sees increasing engagement and excitement among its female clients.
Rebecca Ross
COURTESY OF CHRISTIE’S
Ross explained that female clients are becoming more interested in the function rather than design of Christie’s timepieces, while male clients are gravitating toward unisex styles.

“We’re having a shift in what women appreciate as a status symbol,” Ross said. “For generations, women have aspired more for what they wear on their finger versus what they wear on their wrist, but I think that with female independence skyrocketing over the last one to two decades, the status symbol that a watch can represent is really equal to, if not sometimes greater than the engagement ring they wear. Just like an engagement ring can signify one’s unity to one another, a watch is really reflective of your appreciation for yourself and your own achievements.”


Ross stated the increase in Christie’s female clientele is coming from its luxury division, which saw 20 percent new buyers last December. She stated the expansion of Christie’s handbags and jewelry departments also increased the number of clients coming to its watch department.

When talking about 2024 trends in the secondhand watch market, Ross and Ruffat named shape watches and styles from independent watchmakers as leaders. Both named brands such as Cartier, Patek Philippe and Piaget as ones reigning in popularity among Christie’s clients.

“The consumer is becoming more educated and buying pieces that are not just face value,” Ross said. “They’re more interested in the nuances and the details that make differences when you’re a true collector and when you value the specifics. I think you’re seeing people not just following the usual trends of buying the standard Daytona or the GMT or the Speedmaster, but they’re really looking inward to see what they like themselves, and that’s great to see.”

While the secondhand watch market continues to face challenges, Ross and Ruffat believe the passion among watch enthusiasts will keep the market afloat.

“Collecting watches for most people is a real passion — and it’s deep rooted in watchmaking efforts that stem all the way back to the 15th century,” Ross said. “But, just like collecting in any other category — art, design, cars — collecting watches I think will always be important, as long as it’s relevant to the collector. As long as the brands continue to produce things that keep collectors on their toes, as long as the vintage watch market continues to preserve in the right way and educate in the right way, I think it’s endless.”

FT : BlackRock to launch Saudi investment firm after $5bn deal with Riyadh

BlackRock to launch Saudi investment firm after $5bn deal with Riyadh
Latest move by world’s biggest money manager to build ties and win mandates in Middle East

BlackRock has struck a deal with the Saudi Arabian government to open a multi-class investment firm in Riyadh, anchored by a $5bn mandate from the kingdom’s Public Investment Fund.

BlackRock Riyadh Investment Management will be a wholly owned subsidiary of the $10.5tn US asset manager. Riyadh-based professionals will manage funds that invest primarily in Saudi Arabia but also the rest of the Middle East and north Africa.

The goal is to attract additional overseas capital to Saudi Arabia and deepen its capital markets through a range of investment funds managed by BlackRock.

The move is the latest effort by the world’s largest money manager and its global competitors to build ties and win investment mandates in the Middle East. BlackRock last summer added Amin Nasser, chief executive of state oil company Saudi Aramco, to its board of directors.

“We are excited to build on the deep partnership we have developed with PIF over many years to launch this first-of-its-kind international investment management platform in Saudi Arabia,” BlackRock CEO Larry Fink said in a statement. “Saudi Arabia has become an increasingly attractive destination for international investment . . . and we are pleased to offer investors from around the world the opportunity to take part.”

Despite a brief pullback after the 2018 murder of journalist Jamal Khashoggi, western financiers have flocked to Riyadh in recent years, hoping for a share of the $700bn PIF’s efforts to broaden the Saudi economy beyond fossil fuels. But Saudi Arabia has struggled to attract foreign direct investment to support its ambitious transformation plans.

There has also been an influx of money managers, particularly hedge funds, into Abu Dhabi, where the government is using its $1tn sovereign wealth fund and large sovereign investors as draws to help build up the city as a world financial centre.

BlackRock and the PIF said on Tuesday that they had signed a non-binding memorandum of understanding that calls for the sovereign fund to invest up to $5bn in stages as the new firm hits agreed milestones.

The money will act as seed capital for a variety of funds invested in public equities and bonds as well as alternative assets, such as private credit and infrastructure. The deal will add about a dozen people to BlackRock’s headcount in Riyadh, which is currently less than 20 people, according to people familiar with the plans.

Yazeed Al-Humied, PIF deputy governor, described the fund’s relationship with BlackRock in a statement as “well-established and growing”, and said the partnership “represents a step forward in PIF’s work in making the Saudi investment and asset management market more internationally diverse and more dynamic”.

Fink and several other top BlackRock executives are in Riyadh this week for the signing of the agreement, which was also attended by PIF governor Yasir Al-Rumayyan, as well as meetings with potential clients and investment targets.

FT : Satellite group SES to acquire Intelsat in $3.1bn deal

Satellite group SES to acquire Intelsat in $3.1bn deal
Merger marks last major consolidation in industry as operators look to compete with Elon Musk’s Starlink

SES is acquiring satellite services provider Intelsat for $3.1bn in a cash deal that marks the last major consolidation in the industry, as operators look to compete against new rivals such as Elon Musk’s Starlink.

Luxembourg-based SES and US group Intelsat said in a joint statement on Tuesday that the combination — which gives Intelsat an implied enterprise value of $5bn — would create a “stronger multi-orbit operator” and deliver synergies worth €2.4bn.

The companies previously held talks about a potential combination in 2022 as a wave of mergers and acquisitions swept across the satellite industry.

French satellite operator Eutelsat and UK start-up OneWeb announced a merger that year, while US satellite company Viasat in 2021 said it would acquire Britain’s Inmarsat in a $7.3bn deal.

Musk’s SpaceX, which runs the low-earth orbit (LEO) broadband network Starlink, and Project Kuiper, Amazon’s LEO satellite broadband initiative, which is yet to commercially launch, have shaken up the industry.

They are challenging established operators such as SES, which are suffering from declining broadcast revenues, by offering accessible high speed broadband services even in remote areas.

“This is a highly dynamic market . . . [It] is moving very fast,” said SES chief executive Adel Al-Saleh, who took up his role in February after the abrupt departure of Steve Collar last year. “There are new entrants, there is rapid innovation . . . Having scale and a multi-orbit capability is critical to success.”

The combination of SES and Intelsat will have more than 100 satellites in geostationary orbit, the region about 36,000km above the earth, and a further 26 in medium-earth orbit (MEO). Both also have partnerships with operators of satellites in low earth orbit, which is increasingly attractive because of shorter signal delays compared with geostationary orbit.

The companies said that, combined, they would generate expected revenue of €3.8bn and adjusted earnings before interest, taxes, depreciation and amortisation of €1.8bn.

Al-Saleh said 60 per cent of the combined group’s turnover would be from high growth businesses such as mobility and government services and 40 per cent would be derived from the declining media division, including television broadcasting.

Shares in SES fell 14 per cent in afternoon trading. Carl Murdock-Smith, senior analyst at Berenberg, said in a note that shareholders had wanted cash returned to them rather than reinvested, and would “also be nervous at the execution risk being taken on”.

David Wajsgras, chief executive of Intelsat, said the company had “executed a remarkable strategic reset” in the past two years and “reversed a 10-year negative trend to return to growth”.

Intelsat filed for bankruptcy protection in the US in 2020. The company in 2022 announced it had emerged from its financial restructuring process as a private company and reduced its debt from approximately $16bn to $7bn.

Talks between the two companies collapsed last summer after they failed to agree terms, leading to the previous SES chief executive’s sudden departure.

Al-Saleh hinted that the change of management and improvements in the two companies’ situations in the past year had helped smooth a resumption of talks. “Dave and I . . . worked very hard together to figure out how do we make this thing happen.”

Al-Saleh also suggested that the combination could enhance SES’s bid to win a contract for Europe’s planned IRIS² broadband constellation. The European Commission “will also need to ensure that there is high usage of that installation and having a large player like us . . . to be able to leverage the network and drive traffic into the network is very important”.

The deal has been unanimously approved by both companies’ boards and is subject to regulatory approval, which is expected during the second half of 2025, the companies said.

The transaction will be financed from existing cash and equivalents and the issuance of new debt.

The combined SES will continue to be based in Luxembourg and maintain a “significant presence” in the US.

SES on Tuesday also reported a 1.5 per cent year-on-year rise in revenue to €498mn in its first quarter and a 3.8 per cent increase in adjusted earnings before interest, tax, depreciation and amortisation to €275mn over the same period.

FT : Top UN court rejects Nicaragua’s call to block German support for Israel

Top UN court rejects Nicaragua’s call to block German support for Israel
Latin American country had sought interim restrictions on military and financial support over war in Gaza

Judges at the International Court of Justice have rejected a call for sweeping interim legal restrictions on German support for Israel, in a case brought by Nicaragua that accuses Berlin of “facilitating genocide” in Gaza.

In a ruling on Tuesday in The Hague, the UN’s top court said the Nicaraguan government’s request that German military and financial support for Israel should be immediately blocked — pending an investigation into allegations it has made over breaches of international law — was not at present justified.

The authoritarian government of Nicaragua, which has long-standing ties with the Palestinian liberation movement, filed the case earlier this month.

A panel of ICJ judges ruled 15-1 that there were at present no grounds for precautionary restrictions to be placed on Germany ahead of any final ruling over the nature of Berlin’s support for Israel, which may take years.

“Based on the factual information and legal arguments presented by the parties, the court concludes that, as present, the circumstances are not such as to require the exercise of its power . . . to indicate provisional measures,” said Nawaf Salam, the court’s president.

At the same time, the court rejected an application by Germany for the case to be thrown out altogether.

“[The ICJ] remains deeply concerned about the catastrophic living conditions of the Palestinians in the Gaza Strip, in particular in view of the prolonged and widespread deprivation of food and other basic necessities to which they have been subjected,” said Salam.

Germany’s legal team argued that the Nicaraguan application for emergency restrictions on its aid to Israel was inadmissible on a number of technical legal grounds.

Lawyers for the government also said Germany had not in fact delivered significant amounts of lethal military aid to Israel since its conflict in Gaza began.

The allegations follow an explosive January interim judgment by the ICJ, in a separate case brought by South Africa against Israel, that there were plausible grounds for a case of genocide to be heard.

Ahead of any final ruling in that case, which is likely to take years, the court ordered the Israeli government to comply with a series of restraining measures relating to its war in Gaza, launched in reprisal for Hamas’s devastating attack on Israel in October in which 1,200 people were killed, according to Israeli authorities.

Palestinian health officials say more than 34,000 people have died in Gaza since the Israeli offensive began, while the UN says 1.7mn have been displaced from their homes.

Israel denies it has committed acts of genocide and says its military operation is in full compliance with international law.

From the start of the conflict, Germany has emerged as one of Israel’s most vocal supporters. Citing its historic responsibility to defend the Jewish state in atonement for the crimes of the Holocaust, Germany has boosted aid as well as military and diplomatic support for Israel.

Chancellor Olaf Scholz pledged in October to give Israel “whatever support is needed” and declared the country’s security to be tantamount to Germany’s own “raison d’etat”.

As the death toll in Gaza has risen, however, Berlin has become more equivocal. The government has forcefully stressed the need to alleviate the humanitarian crisis in the strip, and has begun to publicly accuse Israel of hindering relief efforts.

Speaking in Riyadh on Monday following crisis negotiations with regional powers, foreign minister Annalena Baerbock reiterated calls for a ceasefire and said Germany was committed to an independent Palestinian state in the future.